EDITORIAL: Let California’s risky tax experiment begin

A new study of taxes in the 50 states by two Virginia economists suggests California is on the brink of a risky experiment involving how much income its wealthy – in particular its job-creating small-business owners – are willing to pay in taxes.

Based on the assumption that the federal 2001 and 2003 tax cuts will expire and including new taxes that are part of the federal health care overhaul, the study’s analysis shows that in 2013 taxes on the income of the wealthy will be higher than 50 percent in two states – California and Hawaii – and in New York City, which has a city income tax. Thanks to the 3 percentage point increase in the top rate for California’s wealthy that was part of Proposition 30, the Golden State will have the highest cumulative rate of income taxation of all at 51.9 percent, with 13.3 percent of that assessed by Sacramento.

Defenders of Proposition 30 have scoffed at the argument this will drive the rich out of California, with its gorgeous weather and appealing lifestyle. But this in turn is scoffed at by the many small-business owners who pay income taxes, not corporate taxes, on their revenue, and fear devastation.

These states don’t have an income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Will they see an influx of wealthy, job-creating Californians? Thanks to Proposition 30, in coming months and years, we’re going to find out.